‘Mir,’ Russia’s new plastic money option, unveiled

Jun 04, 2015

Alexeï Lossan

RIR

A Mir (World) payment card design. Source: NSPK

A new prototype plastic card, ‘Mir’, has been unveiled by Russian authorities as a new national payment option. 10 banks have shown interest in ‘Mir’. Promotion of the new ‘Visa’-like card will take some years, but the process could be accelerated if state-owned corporations opt to use the new card.

Russian
authorities have unveiled ‘Mir’, a ‘Visa’-like payment card prototype as the
plastic option for internal payments, the Russian business daily Kommersant
reported.

Mass
production of the new card, called ‘Mir’ (World), will begin in 2016.

Officially
presenting the card in Moscow on May 29, Olga Skorobogatova, the Central Bank's
deputy head, said the manufacturers of America’s ‘MasterCard’ and Japan’s JCB
have already shown interest in issuing co-branded cards with ‘Mir’. Manufacturers
of the new card view the BRICS countries as future partners in the project for
an integrated payment system, Skorobogatova said.

According
to Ilya Balakirev, chief analyst at the investment company UFS, Mir’s
development is happening “at such a rapid pace,” that it has already led to
“various kinds of technical problems.”

It
will take some time to understand whether the system works and whether people
will be confident about using it, Balakirev said.

Russia goes it alone

The issue of the payment card is part of a large-scale
program to create an autonomous financial system in Russia, launched as a
countermeasure to the sanctions imposed against Russia by the U.S. over
Moscow’s role in the Ukrainian crisis, which resulted in international payment systems Visa and
Mastercard ceasing to process card payments for customers of several Russian
banks in March 2014.

To avoid a repetition of such a situation, on April 1 Russia launched a national payment system, in which payments
are processed within Russia. The issuing of plastic cards is intended to be the
next stage of the implementation of the system, which Visa and Mastercard have
now joined.

"The idea of establishing a national payment card was
not a direct result of the sanctions,” said Dmitry Bedenkov, head of the
analytical department at Russ-Invest. “Although the activation of the process
began after the introduction of sanctions, this topic had been discussed to varying
degrees earlier. The transition to a sanctions regime just increased the
relevance of creating domestic payment systems," he said.

According to the Central Bank, 10 Russian banks are ready
to issue the new card, including the sanctioned Bank Rossiya and credit
institutions in Crimea, where all recognized international payment systems
pulled out following the imposition of sanctions and Russian banks have so far
yet to venture. Incidentally, proposals for co-branding do not apply to the
banks under sanctions.

According to Anton Soroko, an analyst at Finam Investment
Holding, the physical production of a plastic card is a fairly cheap process,
which cannot be compared to credit institutions' other operating costs, such as
marketing costs or payroll.

"It
will take at least another few weeks for the prototype payment application for
the Russian national card Mir to pass tests and show satisfactory
results," said Vasily Yakimkin, Associate Professor of the Finance and
Banking Faculty at the Russian Presidential Academy of National Economy and
Public Administration.

To
expedite work on developing the card, the Russian payment system may need to conclude
special agreements with international operators like Visa, MasterCard or China’s
UnionPay.

However,
as Balakirev pointed out, the market is very sensitive to regulation in this
area, and administrative resources can do a lot to smooth the way forward.

In
particular, he said, the state could urge state-owned corporations to switch to
the new Mir plastic card, requiring large companies to begin working with the
system. Furthermore, with ‘Visa’ currently leading the market, other
international systems could willingly agree to launch co-branded products with
‘Mir’, in order to gain some advantage, said Balakirev.